Case Study #23: Contractor Botches Claim for Non-Profit, Costs
Business Tens of Thousands of Dollars
Building Type: Commercial (RE-OPEN CLAIM)
Cause of Loss: Water from pipe burst
No. of Buildings: 3
Description of damages: A pipe burst inside of a local non-profit organization caused damage
to three buildings, including historical architecture, historic contents inside, ceilings, walls,
floors and mold growth.
Public Adjuster involvement: ACI Adjustment Group was hired after the insurance company
failed to pay a fair settlement.
Purpose of Case Study: The purpose of this case study is to show how a policyholder can be
severely financially harmed by handling a claim on their own (or hiring a contractor to negotiate
their settlement) instead of using a Public Adjuster.
After suffering a major loss from a pipe burst, a local non-profit organization was faced with
severe damages to historic contents and architecture. The damages resulted in months of lost
business and a six-figure repair bill.
Initially, the non-profit organization contacted multiple Public Adjusters to seek assistance.
After taking several bids on fees from Public Adjusters (ranging from 10%-15%), the non-profit’s
board of directors decided to accept an offer from their contractor to negotiate with the
insurance company for no additional costs.
Not only is it illegal in many states to adjust an insurance claim without a license, but
contractors who do decide to unlawfully negotiate with the insurance companies typically
recover lower settlements than those that a Public Adjuster would recover. Many policyholders
are under the impression that the estimate is all you need to negotiate a claim, however an
estimate is just a number if the contractor is not educated on the insurance policy – none are.
This case study will outline several decisions made by the contractor and the insured that
directly negatively impacted the claim payout.
1.) In order to receive full coverage for a claim, the insurance company must be able to
verify all damages. The contractor completed work that impaired the insurance
company’s ability to see further damages to the property.
A. Why did this happen? – Most contractors view the claim from a quick-fix
perspective. To reduce job completion time, man-hours, and materials a contractor
will often impose a quick-fix plan to restore the property. While some materials can
be “recycled” or “patched-up” and still appear to function properly, the insurance
policy actually covers restoration to “pre-loss condition” – meaning that a quick-fix
“patch job” would be unacceptable.
2.) The contractor mistakenly made repairs and upgrades that were not covered by the
insurance company – and still billed the client.
A. Why did this happen? – Many contractors view an insurance claim as a “blank
check” to make repairs. This is a misconception, as insurance companies are very
strict with paying claims. This contractor made repairs that included upgrades to the
property – which are explicitly not covered by the insurance policy – and in doing
so, also negated tens of thousands of dollars’ worth of repairs that the insurance
company would have been obligated to cover. This contractor clearly had no
understanding of insurance coverage and had never read this policy.
3.) The non-profit did not document or inventory any of their historical items. There was
no up-to-date price catalog or inventory list to present to the insurance company to
verify the value of the damaged property.
4.) The non-profit did not get proper coverage for “artifacts.” They were also underinsured for con-insurance, which severely lowers their maximum payout. The non-profit
had $25,000 in coverage for artifacts which is affected by an 80% co-insurance clause.
Co-insurance can be very confusing to policyholders. In order to get a full payout for
their damages, the non-profit would have needed to be insured for at least 80% of the
total value of the “artifacts.” Otherwise, their payout would be a percentage of the
amount of lost property. For example, if the actual value of the “artifacts” was
$1,000,000, the non-profit would have needed $800,000 in coverage to recover 100% of
their loss. If they had $400,000 in coverage, which is 50% of the required coinsurance,
they would recover only 50% of the loss. In this case, if the value of the artifacts was
$1,000,000, and they had $25,000 in coverage (3.125% of required coinsurance) their
payout would be $781.25.
A. Why did this happen? – The insurance agent is really the party at fault here for
knowingly underinsurance the insured, however the insured should also have looked
into their coverage better.
Status of claim: Due to the contractor’s negligence and lack of knowledge on the policy, the
insurance company retracted their original estimate and offered an even lower settlement.
Our firm has taken the claim over at this point and is currently in negotiation, but there are
several items that we may not be able to get covered, even with the assistance of an attorney.